Sunday, August 14, 2011

Debt and Tax Breaks

Debt and Tax Breaks

Repeat after me, "Every formula and equation has an Equals Sign in it."  Irrespective of ones politics, religion, economic posture or ethical persuasion, it is a hard and fast fact that cannot be denied or discounted.

As a nation presided over alternately by Republican and Democratic presidential administrations, Houses of Representatives and Senates we have swayed our allegiances back and forth between extremes.  The pendulum swings between raising taxes and cutting taxes, providing financial support to people who cannot support themselves and taking that support away, funding education and pulling that funding, investing in our infrastructure and neglecting it, fighting wars and ending them, building a great nation and watching it decay.  Always, always the tax revenue to pay for such positive things falls short of the actual costs and we issue debt paper to make up the difference.

In July-August 2011 the nation teetered on the brink in default because the Republican lead House of Representatives decided that the debt ceiling increase that a Democrat President wanted was no long acceptable after 14 debt ceiling increases in a 10 year period, 8 of which were under a Republican Presidential Administration and were used to fund two wars and provide tax relief to about 3 million Billionaires, Millionaires and hugely profitable corporations.  This top 1% of Americans represents more wealth than can actually be counted.  And when Republican legislators turn on the tears of hardship and poverty for their constituent wealthy, they try to equate them with the Average Joe who is truly over taxed.  "We cannot raise taxes on the American people and job-creators," is the cry.  It is as though there is any comparison between the two categories of Americans.  Let's face the Equals Sign.  Three million Americans who have incomes in excess of $1,000,000 per year paying an additional $100,000 would generate $300bn per year in tax revenues.  In ten years they would reduce the deficit by $3 trillion.

So late on August 2, President Obama signed the debt ceiling/spending cuts bill into law.  This bill saved the nation from default on our debt but it did far worse in every other way.  It did nothing to increase our ability to pay down our balance, i.e. increase taxes or remove tax breaks.  This in itself will slow the repayment of the debt balance considerably.  Without additional tax revenues, the full burden of paying the debt balance falls to the people who are now paying taxes and sits on the shoulders of people who previously were supported by the tax/debt funded programs.  Mathematics are inescapable.  Even at the July 2011 debt level of $14.3tn, trying to pay it off with 30-year Treasury Bills using a constant 3% annual interest rate we would have to pay $1tn a year for 20 years to do it.  This includes the current $429bn we are already paying on our debt today.

There is no rational argument that can be made for not balancing our Federal budget with all means available.  But trying to do it with only spending cuts in not a rational approach.  Trying to do it that way makes the least capable people pay the most and it will take the longest while causing pain to the most vulnerable population of the county.

$2.7tn of spending cuts will cause businesses and corporations to lose a lot of profit.  They will have lower gross earnings and therefore will not be able to afford to keep as many employees.  Congress specified the spending cuts level without saying which budgets would be impacted.  If all the funds that are cut paid for $50,000 employee compensation packages, 5.4 million jobs would not be funded and would not exist for the next 10 years.

Most of the budget of Federal agencies goes to employee costs and grants to communities that spend it on consultants, planners, architects, doctors, etc.   Other programs provide direct assistance for food, shelter, medical care, training, transportation so that people have the basic necessities to live and provide for a family.  Since they do not save the money or use it to pay off credit balances, they in turn support local businesses that profit from the money the low-income people get.  In short, who really benefits from a Section 8 housing subsidy payment?  A family gets shelter and the land owner gets the money.  Give a woman Food Stamps – she gets the food and the grocery store gets the money.

It is foolish to think that cutting the amount of spending that Congress has demanded will not have a slowing affect on the economy.  The money that seniors receive from Social Security goes directly into spending on essential goods and services.  That becomes the income that businesses want and need in order to be those 'job-creators' that Freshmen Congressmen and women keep telling us are out there somewhere.

So where will Congress make the cuts?  They most certainly will cut the support for education.  Most Republicans already hate the public school system in this country.  They want vouchers to send children to private schools where they can get a "proper education" free of the Liberal biases and the Darwinian theories.  No Socialism will be taught there.  Now we can expect that states and local counties will have to pick up the lost funds themselves. 

Unemployment Compensation is a dirty word if it must last more than 13 weeks.  Well, two words.  Anyone who is out of work for more than a couple of weeks is not really trying.  They want to be a leech on the workingman who has to pay their unemployment checks. And the unemployed justify their attitudes by figuring that wealthy people will be paying them what they are due.  It seems that UC was alright until about 10 million people needed it and rehire prospects became futile.  It seems that McDonalds is always hiring crew positions. That is unless the restaurant is closing because local customers don't go out anymore and the drive through traffic has stopped due to area unemployment. If a burger or chicken franchise is closing, the local economy must really be in dire straits.

Doctors, hospital and clinics have been hurting for many years as the Medicaid and Medicare reimbursement rates have been cut or did not keep pace with increases in costs. Forty-four percent of the funds transferred from the Federal budget to the states is for Medicaid costs.  When the Federal budget limits Medicaid spending, the states will have to pick up the difference.  Hospital Emergency Rooms have been the method of sole resort for poor people to get medical help.  Hospitals are under statutory obligation to serve EVERY person who presents himself inside their doors.  No one pays directly for that treatment but the hospitals do make up part of the unpaid balances by charging higher service fees and costs for a bed over night.  We can lower their direct payments, but we will pay for the costs anyway.

Maybe there will be an upside to this balanced budget hoopla.  We won't be able to keep spending tens of billions each month for wars that are financed with the sale of Treasury Bills.  We will have to pull up the stakes and come home.  Did I hear a "Yeah, right"?  In a manner similar to the obsolete style of providing medical care in this country we must overhaul our military philosophy.  Hundreds of thousands of men and women will come home from tours of duty to NO JOB.  No prospects for employment either.  Maybe if wealthy conservative citizens feel threatened, they will agree to pay some more of their money to fund the wars?  They can start by reimbursing the rest of us for the $1.07tn we have already spent in Iraq and Afghanistan protecting their business interests and supporting their defense contractors.  I'm going to guess, not.

Beginning in August and continuing through the next 6 months about 1 to 1.5 millions jobs will evaporate due to the lack of Federal funding that states will not be able to compensate for.  The economy is a going concern as business investors would say.  When any business suddenly loses 25% of its revenues, they cannot immediately stop 25% of its expenses.  The relationship is not a linear, one-to-one, relationship.  However a business is far more able to summarily dispose of their workforce to contain losses than is a family.  When the income of a household is reduced, the parents cannot just turn a child out of the street.  They cannot set Gramps out on the sidewalk with his old leather suitcase and hope he will survive.  Actually, the more hardhearted people CAN and DO do that.  But we are supposed to be a civilized highly developed nation and such things are not supposed to be necessary.

We instituted support programs that serve to make sure that people have shelter, food and medical attention.  We added programs specific to caring for children.  Now that the going is getting tough, fiscal conservatives cry that they are being charged too much for that support.  Maybe if all the very wealthy criers were to shoulder a larger share of the costs, the lesser wealthy fiscal conservatives would not have to be like middle class tax paying Americans and pay as much.